4. Consider a modified Solow growth model with long run technology progress.Specifically, the aggregate production function is
Y = F(K,bN)
where K is capital, b denotes the number of unit of "human capital", bN is the efficient unit of labor. Letting 8' denote the future human capital per worker, assume that b' = (1+ f)b, where f is the growth rate in human capital. Besides, the labor input N evolves according to N' = (1 + n)N, where N' is the future labor input, and n is the growth rate of N. The economy is closed, and the econony's saving rate is ixed and given by s. Capital's depreciation rate is given by d. Use I to denote investment
【題組】(d) Consider the case that the economy encounters a sudden increase of
labor input due to immigration. Given the fixed growth rate n, what is the short
and long run effect of this sudden increase in N on i? Assume that when the
sudden increase happens, the economy is in its long run equilibrium.